Washington lawmakers let a pair of tax breaks for high-tech industries lapse in their 2014 legislative session, including one for sales tax due on server equipment and power installations at new data centers in rural parts of the state. At least one Republican lawmaker is warning that Microsoft’s choice of West Des Moines, Iowa, for a $1.1 billion data center project is a harbinger of things to come in Washington.
Iowa is providing some $20 million in state incentives in addition to others from the city. But it appears Microsoft’s decision was more complicated than tax breaks and that the native Washington firm had been talking to the Iowa community for five or six years about such a facility, according to The Des Moines Register.
Spokesmen for the Redmond-based software company said in response to a query by The Olympian and News Tribune this week that tax incentives are only one factor in decisions about where to invest in facilities.
“As we begin the process of siting a new facility, we evaluate the top-three attributes in the total cost of occupancy which are taxes, energy costs, and incentives,” DeLee Shoemaker, Microsoft’s senior director of state government affairs, said in statements released last week by the firm’s public relations consultant, Waggener Edstrom Communications.
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Asked directly about the link between the selection of Iowa and Washington’s inaction on tax incentives, the company demurred and did not blame the Legislature’s inaction for the Iowa choice. The company did not say if Washington had ever been in the picture.
Shoemaker said in a statement:
Our discussions with the Iowa Economic Development Authority Board (IEDA) have been underway for some time. The IEDAB demonstrated a sustained interest in striking an agreement that was mutually beneficial for a long term investment. Any time Microsoft makes a location investment decision, we consider many factors, including availability of skilled workers, local business climate, total operating costs, and proximity to customers and other Microsoft business units. In the case of the Iowa data center, one key factor was the demonstrated commitment of state officials to work with us on a mutually beneficial long-term agreement supporting our business needs while bringing new jobs and capital investment to Iowa. Incentives are not the only factor we considered, but they were a factor in our decision-making.
Republican Sen. Janea Holmquist Newbry of Moses Lake threw blame at rival House Democrats in a press release this week.
Her proposal, Senate Bill 6550, would have extended the tax breaks past July 2015. Cost to the state would have been $18.7 million in 2015-17 and $50 million more in the following biennium, according to a state fiscal analysis.
In her release, the lawmaker said:
“Sometimes it’s no fun being right,” said Holmquist Newbry, R-Moses Lake, who serves as chair of the Senate Commerce and Labor Committee. “Washington’s data center incentive is a proven economic-development tool that has benefited the entire state, but especially our rural communities. I was joined by data center developers, mayors, port developers, trade unions and others in warning that if we didn’t provide stability and predictability to this industry, other states would. The decision by Microsoft to locate one of its largest facilities in Iowa is a harbinger of things to come thanks to the failure of House Democrats to act.”
The failure was actually more bipartisan than that. Several tax break measures died at the end of the 60-day session as House Democrats pushed to close at least four tax exemptions including one for oil refineries and Senate Republicans refused while insisting on extending several tax breaks or creating new ones.
In the end neither side prevailed.
The data center tax exemption was not the only proposal helping high-tech that died. A tax credit for research and development by high-tech firms also died, and together the two lost tax breaks were cited by Gov. Jay Inslee as a reason he vetoed a cut to life-sciences research grants earlier this month.
Inslee had favored a temporary extension of high tech tax breaks. He indicated at the time of his budget signing that he thinks it is worth looking next year at whether there is a way to continue the Life Sciences Discovery Fund beyond its sunset date or to get other support for the biotech and high-tech sectors.
Asked about other pending business decisions by Microsoft that could be affected by lawmakers’ inaction on tax credits and exemptions, Shoemaker gave this statement:
With a company our size, there are always plans underway for new programs and initiatives. A number of factors determine how and where we implement those plans. It is the case that the legislature’s failure to extend the R&D tax incentives this past session puts Washington at a disadvantage in competing for tech industry investments. R&D is the backbone of the entire innovation sector, which has been the state’s dominant driver of economic growth, responsible for roughly two-thirds of new jobs in Washington over the last two decades. Forty-three other states offer incentives to encourage businesses to build facilities in which they locate employees who have strong careers and benefits. In the coming session, it’s critical that the legislature invest in the future of the state’s economy by supporting these strategic incentive programs that have a significant ROI in the form of new jobs, increased economic activity and incremental tax revenues.
Holmquist Newbry is running for a seat in Congress and would not be back if she wins. But the issue won’t go away.